Appendix A – Budget template samples
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Putting together a budget can be daunting if you’ve never done it before. To make things as easy as possible, we’ve put together three templates. These include models for projects without external funding, your first project with publisher funding, and a later project with significant outside investment.
We’ve also put together samples with embedded comments, so you can see how these look when complete. Rather than send you off with just the numbers, we’ve created the following narratives to set the stage and provide some context.
This way, you’ll have a sense of the decision-making that went into each sample. Hopefully, you’ll be able to find similarities to your own situation.
Note that these templates contain a variety of formulas. Some knowledge of spreadsheets is helpful, but we’ve noted how the formulas work, so you can add columns and rows to better represent your own situation.
The columns represent development time, and you may need to add or remove columns. As you do this and add dev-hours to the cells, you’ll see the direct impact on your project budget.
Ultimately, this leads to the dev-month calculation (see Chapter 1 of The GameDev Business Handbook). This metric, used by many publishers, tells us how much combined time is required to complete the game and the average cost of one additional month of development. This helps publishers understand how lean you are operating and approximately how much it’s going to cost for every month of delay (should you require it).
Budgeting for your first project
The “Sample – First Project without Funding” budget represents a hypothetical group of four people who are planning to eventually begin work full-time as founders of a new studio. They represent the following roles:
- Creative Lead
- Technical Lead
- Art Lead
- Animation Lead – Starting work on the game in month seven, but helping the rest of the team out as needed on organizational matters.
Prior to starting work on their game, these individuals decided they value their work at $30,000 per year. However, with no funding coming in for this startup business, team members are doing double duty, working paying full-time jobs during the day and developing this game at night and on weekends. They opt not to take a salary. As discussed in Chapter 2 of The GameDev Business Handbook, the team recognizes the importance of including their labor in the budget.
The budget breaks out cash expenses that must be paid from the founder salaries, which will be reimbursed later. This allows us to track the foregone compensation (the money that staff would have earned if drawing a salary) while still removing it from the running monthly cash flow at the bottom of the spreadsheet.
Thinking ahead, the team decides that should this game become successful, the founders will be paid back as revenue starts to come in after launch. Once able, the team members will start drawing a regular salary at a re-negotiated annual level. The four also agree (with the assistance of an attorney) to evenly split equity in the corporation they will form should the game find success.
The four decide that once their game reaches the alpha stage, they will have saved enough to quit their day jobs and work full-time on the project. You can read more about the financial risks of starting your own business in Chapter 2 of The GameDev Business Handbook. Since this requires subsisting on savings while paying out-of-pocket expenses, we recognize that this is both risky and a decision that some people simply cannot take on.
Additionally, this team recognizes the need for a business manager. They have identified someone they’d like to hire, should this game be successful enough to launch the studio. For this project, the business manager is working 20 hours per month until beta, at which time they double their commitment to see the game through launch.
In our example, the business manager will be considered a studio founder and entitled to 10 percent equity in the business, with the remaining 90 percent split amongst the four creative founders equally. The business manager will also be part of the reimbursement plan agreed upon by the founders.
The founders decide that in order to finish the game in a timely fashion, they will need to enlist the help of contractors. On the budget sample, these are:
- A coder
- A concept artist
- A character artist
- An environment artist
As you look at the budget, you might be wondering why contractors are making a higher hourly wage than the founders. First, contractors are always likely to be paid a higher hourly fee, as they need to pay their own taxes and supply their own tools. Second, our founders are assigning as low a value as is reasonable to their work, with the understanding that the equity they will own in the company later will make up the difference. It is typical that founders take less up front in service of greater earnings later, once the company is successful.
The founders also determine they will need to contract sound engineering and testing at a fixed rate. Music is a trickier subject, as it can be extremely expensive. There are multiple ways to approach paying for music:
Up-front payment. This is typically out of reach for most small teams, as music can cost hundreds of $/£/€ per minute.
- Depending on the composer, you can negotiate different rates to completely own the rights or simply have exclusive license for interactive media.
- Royalties. If you can’t afford up-front payment, but want bespoke music for your game, you can negotiate a royalty fee. Typically this is between five and ten percent of net revenue. We cover royalties and licensing in Chapter 11 of The GameDev Business Handbook.)
- Licensing. Popular music is likely going to be far too expensive, but you may be able to find already-written (lesser known) works you want to use. Composers may be open to letting you use the music they’ve already created for the right price.
In the case of this example, the team negotiates a five percent royalty for the composer. Therefore, there are no out of pocket costs factored into the budget. The composer will start receiving payments after the game goes on sale (and platform holders begin disbursing revenue to the founders).
Other general and administrative expenses included in this sample are software as a service (SaaS) fees and rental. For our purposes, we are including engine fees, creative tool fees, and communication tool fees. The engine and creative tool fees are assigned to employees only. Contractors would be expected to incur those costs directly (refer to the section on the “contractor test” in Chapter 3 for more). The company can pay the fees related to firm-wide communication tools like Slack, which charges per-user for premium services.
The rental option we include in the budget represents working remotely or from one of the founders’ homes. Later, we suggest how you might find affordable space in an office environment. However, if you continue to work remotely after forming your business, you may want to speak to an accountant about taking a business deduction for the space in your home.
We’ve also factored in a variety of administrative professional services. For the purposes of this example, we assume the team enlists an accountant to help with filing business taxes. We also include attorney fees to cover drafting contractor agreements and reviewing those received from contracted service providers (like the musician and sound engineer).
Travel is factored on $1,500 per person for GDC, PAX East, E3, and PAX West. Finally, we include a nominal miscellaneous budget of $200 per month for unanticipated expenses. No, it isn’t much, but the team’s first game is likely to be developed on a shoestring.
As you look at this sample, you’ll notice two things. First, the timeline is relatively aggressive. This is simply for the sake of presenting the concepts in a digestible format.
Since this team is working on the off-hours, it will be harder to consistently come home from work just to start work on something else. That means development could be stretched further, possibly over four or five years instead of eighteen to twenty-four months.
Because we’ve included salary valuations for the core team, the budget for this game exceeds $300,000. Yes, that’s quite high for a first project. As stated earlier, we believe it is important to recognize that time and work has value, even if you can’t compensate yourself from the outset. The cash part of the budget is also significant, at over $110,000. While this team chose to hire contractors, you may choose to take on additional production roles yourselves.
You may also be able to work out arrangements with your contractors that give them a royalty on the back end (after the game starts earning money) rather than up-front payment for their services. Just remember that people die of “exposure.” You can’t buy food with it, and you can’t pay your rent with a name in the credits of an unfinished project.
You also want to make sure you aren’t giving away too much on the back-end. If you “save” too much money up front by using the royalty option, you’ll erode your recurring cash flow for the longer term. This will make it harder to sustain your team with revenue from game sales.
Once you do finish your game and get it onto digital marketplaces, it’s time to start thinking about what’s next. Our second budget can help when you’re ready to start seeking funding from publishers.
Building a budget for a publisher
Our team of scrappy developers shipped their game, impressed reviewers, and found success with gamers. The studio has been incorporated and, after a brief holiday, the team put together a prototype.
Our creative lead and business manager met with publishers to pitch the game while the first project continued to sell and earn the company revenue. After some months of negotiations, the deal has been signed and our studio’s second game is now a fully-funded partnership with a small publisher.
In our second project budget, “Sample – First Project with Funding,” we’ve added the concept of milestone payments. No longer will our team of founders be paying out of pocket. The company is a separate entity, responsible for its own financial obligations.
Despite the success, this is still a relatively small project. The team is still being frugal. Instead of an office, the five founders have decided on a co-working space with shared resources. Travel budgets are still reasonable, with the publisher providing booth and meeting space at trade and fan shows.
The big change in this budget is in the cash flow section at the bottom. Publisher disbursements are released when the team hits various milestones. We’ve allotted additional time for that revenue to arrive, as payment can take 30 to 45 days from invoice receipt.
With the monthly cash flow tracking, you can see how reserves are depleted monthly, only to be replenished as milestones are met. As we discuss in Chapter 2, managing cash flow can be the difference between paying your staff and destroying morale because you miss a payday.
Note that these project budgets do not represent your organization’s full accounting needs. Even as you move onto your second project, you are still realizing the revenue from the first game, paying back delayed salaries, and possibly investing in additional patching and bug fixes. Later on, you’ll have multiple, larger projects running at the same time. You’ll also have bigger and more complex budgets…
The final sample budget, “Sample – Later Project w Significant Funding,” represents a multi-million dollar game funded by a publisher. While the scale is drastically increased from the first funded project, the concepts are the same.
To be clear, what has been provided are project budget samples and not studio budget samples. At this scale of millions of $/£/€, you (or your business partner) should be utilizing your accounting software’s budgeting tools to not only track your project costs, but company costs. The project budget does not include some big ticket items like insurance or recognition of additional revenue from previous projects or debts.
Here, you’ll see more employees, more contractors, greater administrative costs, and a longer timeline. You’ll also see the same approach to budget planning, dev-months, and cash flow management. Once you understand the concepts of budgeting, it becomes much easier to scale up or down depending on your project.
FINAL NOTE: These templates and samples are a long-term project of The GameDev Business Handbook team. We hope to update these over time and make them as accessible to provide maximum understanding for those starting out. If you’d like to send us samples of your budgets where you’ve added features you’d think would be helpful to others, please send them to firstname.lastname@example.org. If we incorporate it into a future update, we’ll be sure to credit you if requested on the update.